Journal of Air Transport Management 89 (2020) 101930

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Journal of Air Transport Management

journal homepage: http://www.elsevier.com/locate/jairtraman

Airport privatisation: A successful journey?

Prof Anne Graham *
University of Westminster, 35 Marylebone Road, London NW1 5LS, UK

A R T I C L E I N F O A B S T R A C T

Keywords: It is now over 30 years since the first airport privatisation occurred with BAA in the UK in 1987. Therefore, the
Efficiency aim of this paper is to assess the impacts of this development and evaluate its effectiveness, using examples from
Impacts all over the world. It begins by considering some key issues such as the extent of government involvement; the
Privatisation
selection of operator/investor; the choice of network/group versus individual operations; and the relevance of
Regulation
Success
economic regulation. This then leads on to an investigation of measures of success, particularly in relation to
Airport efficiency and service quality. Reflecting on the privatisation journey, the paper defines key changes that have
occurred concerning how privatisation is considered now compared to its early days in terms of motivation,
geographical reach and type of model, investor and sale. It also highlights the importance of the regulatory and
competitive environment and briefly considers the impact of the coronavirus pandemic in 2020.

1. Introduction rapid spread of the Coronavirus pandemic in 2020 has brought with it a
huge uncertainty regarding future airport prospects.
An increasingly important theme in airport government policy, yet The most recent global data for 2017 (ACI, 2018) shows that of the
nearly always controversial, is private sector involvement or privatisa­ top 100 busiest airports for passenger traffic, 51% have some type of
tion. It is now over 30 years since the first airport privatisation occurred private sector participation. This drops to 39% for the top 500 busiest
with BAA in the UK in 1987. Since then a significant number of other airports as it tends to be the larger airports that have experienced such
countries have adopted such policies, albeit that the scope and extent of changes. This also means that only around 14% of scheduled commer­
private participation has varied considerably (Enrico et al., 2012; Gillen, cial airports of all size have some private participation - 614 of around
2011; Airports Council International (ACI, 2017a; Deloitte, 2018). The 4300 airports in the world – but this represents 41% of all passengers.
first notable wave of such changes occurred between 1996 and 2001 at a Substantial differences exist for world regions. Leading the way is
number of European airports (e.g. Dusseldorf, Naples, Rome, Birming­ Europe with 43% airports having some private sector involvement
ham and Bristol), in Australia and New Zealand, Malaysia and South (representing 75% of the passenger volume) followed by Asia-Pacific
Africa, and in some South and Central American countries (e.g. (26% airports; 45% passengers) and Latin America-Caribbean (25%
Argentina, Bolivia and Mexico). This was temporarily hindered by 9/11 airports; 60% passengers). The share of airports in Africa is only 3%
and some other less favourable political and economic developments (e. (11% passengers) and is similarly very low in North America (2% air­
g. SARS, the Iraq War) in the early 2000s, but by 2004, with an improved ports; 1% passengers) and the Middle East (1% airports; 13% passen­
overall outlook, privatisation came back onto the agenda of an gers) (ACI, 2017).
increasing number of airports or countries (such as Brussels, Budapest, While it is widely acknowledged that greater public sector involve­
Paris, Cyprus, India and Thailand). However, this second wave was ment in airports is an important industry trend, it is not always clear
subsequently slowed down by the onset of the global financial crisis and what is mean by terms such as ‘privatisation’ and ‘private sector
economic recession in 2008, although conversely in a few countries participation’. There are also what is known as Private-Public Partner­
(such as Portugal, Spain and Greece), airport privatisation was seen as a ships (PPPs or 3Ps) and sometimes these are considered separately from
way to raise funds to offset the large sovereign debts that had accumu­ privatisation, but often the terminology is used interchangeably. For this
lated and restore some health to public sector finances. The paper PPPs are included under the privatisation definition, which should
post-recession years then saw a return to greater private participation in be interpreted in the broadest sense as any transfer of economic activity
countries as varied as France, Japan and Brazil, but the dramatic and from the public to the private sector.

* Corresponding author.
E-mail address: [email protected].

https://doi.org/10.1016/j.jairtraman.2020.101930
Received 22 June 2020; Received in revised form 5 August 2020; Accepted 5 September 2020
Available online 19 September 2020
0969-6997/© 2020 Elsevier Ltd. All rights reserved.
P.A. Graham Journal of Air Transport Management 89 (2020) 101930

The motivations for airport privatisation, as with other industry Espanoles y Navegacion Aerea (AENA) in Spain in 2015 and a couple of
sectors, are varied and complex and depend on the economic, political smaller airport operators, such models have largely been abandoned in
and air transport environment of individual countries. However, a study favour of other approaches. A model that has maintained a more
of a large number of privatisations discussed in the rich collection of consistent popularity over the years is the trade or freehold sale (or very
academic literature up until 2010 identified the following six most sig­ long lease) to a single or more commonly a consortium of investors. This
nificant objectives for airport privatisation, in order of importance has been used extensively for UK regional airports, other European
(Graham, 2011): (1) improving efficiency and performance; (2) airports (e.g. Dusseldorf – 1998, Turin – 2000, Rome – 2000, Malta –
providing new investment funds, (3) improving the quality of manage­ 2002, Milan – 2011, Toulouse – 2015, Lyon – 2016) and elsewhere (e.g.
ment and encouraging diversification; (4) improving service quality; (5) South Africa – 1998, Wellington – 1998, Sydney - 2002).
producing financial gains for the public sector; and (6) lessening the Whilst these two divestiture models have had a major impact in
public sector influence. These are clearly reflected in the stated rationale changing the nature of the international airport industry, an equally
for UK airport privatisation way back in the 1980s: important development has been the use of a concession or PPP type
‘The [UK] Government is committed to converting as many as possible of approach (Cruz and Marques, 2011) which transfers management to the
Britain’s airports into private sector companies as part of its policy of private sector for typically a 20–30 year period, but importantly the
reducing the role of the State. The Government is confident that the privati­ government retains ownership. This has often been used in developing
sation of airports will bring substantial benefits. Besides reducing the size of or emerging economies such as Lima (2000), Montego Bay (2003),
the public sector, privatisation will assist the Government’s objective of Delhi/Mumbai (2006) and Brasilia/Sao Paulo (2012) although not
creating wider share ownership. It will also increase employee participation exclusively as other examples include London Luton (1998), Zagreb
as, in line with previous privatisations, employees will be encouraged to buy (2012), ANA in Portugal (2013) and Kansai (2015). A special type of
shares at the time of sale. Privatisation will also provide for greater freedom concession agreement has been used, known by the generic term Build
for management. For example, airports will have access to private capital. It Operate Transfer (BOT), when substantial new investment is needed, for
will also encourage more innovative management, and lead to efficiency gains example a greenfield airport or new terminal. Again, this approach has
and greater responsiveness to customers. These benefits will have profound tended to be favoured in emerging economies (but not always) where
consequences for the future operation of airports in Britain’. (Department of higher growth is predicted, necessitating expanded infrastructure. Ex­
Transport, 1985). amples include Ankara (2003), Hyderabad/Bengaluru (2004), Larna­
Such factors have continued to be significant drivers. As already ca/Paphos (2005), Varna/Burgas (2006), Madinah (2012) and the new
identified after the global recession of 2008 for some struggling gov­ Istanbul airport which opened in 2018. Due to the growth in popularity
ernments in Europe, ‘producing financial gains for the public sector’ of the PPP model according to ACI, 2017 in 2016, it accounted for
became the overriding objective in order to lessen public debts – a prime around 41% of all airport privatisations with trade sales and share flo­
example being Portugal (Cruz and Sarmento, 2017). As the privatisation tations representing a further 23–24% each.
trend has continued, more generally there appears to have been a However, in reality this paints rather too simplistic a picture of how
movement away from key political and ideological arguments, such as the airport industry has evolved, as through time variations within each
looking to the private sector as a means of addressing public sector in­ model have emerged and been moulded to suit specific needs. Arguably
efficiencies and raising quality levels, with a shift towards more prag­ it is now more appropriate to consider a continuous spectrum of airport
matic considerations, such as a need for new capital for investment or ownership and operating models, with government owned at one end,
additional government income by selling off airports or granting airport privately-owned or operated at the other end, and government-owned
concessions. with private sector participation in the middle (Deloitte, 2018).
The aim of the paper is to assess the ‘successfulness’ of this 30+ year Chaouk et al. (2019) argue that cultural dimensions, human resources
airport privatisation journey by synthesising previous research of many strategies and administrative governance issues in addition to the very
different countries and regions. The definition of successfulness has been specific nature of the social-political environment are all factors that
kept intentionally vague so that a number of different aspects of airport need to be considered in privatisation transactions. The extent of gov­
performance can be considered. The paper is based on the Martin Kuntz ernment control and whether ownership is handed over fully or partially
Memorial Lecture given by the author at the European Aviation Con­ to the private sector naturally tends to be a very controversial decision
ference in Athens in 2018. It begins by considering some key issues such and reflects the broader national and political systems that are in place
as the extent of government involvement; the selection of operator/ (Brutsch, 2013). An important consideration is that airports can be
investor; the choice of network/group versus individual operations and viewed as strategic and vital national/regional assets, that have both
the relevance of economic regulation – arguably with the level of con­ economic benefits and environmental costs to the communities they
troversy associated with each of these rising in turn. This then leads on serve. Inevitably the private and public sectors will have different mo­
to an investigation of measures of success, particularly in relation to tivations in managing airports. Thus, privatisation decisions involve the
efficiency, service quality and commercial revenues, before the paper government weighing up their influence over strategic planning de­
concludes. cisions against the obligations and risks of ownership, and the benefits to
be gained by totally devolving operational and financial responsibilities
2. Key issues related to airport privatisation to the private sector.
The PPP approach with the government maintaining ownership has
2.1. The extent of government involvement become a popular means by which to spread the risks between the pri­
vate operator and government, but the concessions contracts are com­
One of the noticeable developments through the years has been the plex, and experience over the years has shown that achieving favourable
emergence of a whole range of different types of privatisation which outcomes for governments, the operator and users is an extremely
have been applied depending on the government’s objectives, and the challenging task (Deloitte, 2018). Decisions also have to be made in
specific circumstances and requirements of the airport. A popular model relation to whether the operator of the airport (with a PPP or any other
in the early stages of privatisation was a share flotations/initial public type of privatisation) is fully or just partially privately owned (either
offering (IPO) or equity market issue. ‘Listed’ airports appeared in majority or minority) when not all control is relinquished to private
Europe - BAA (1987), Vienna (1992), Copenhagen (1994), Zurich operators (Albate et al., 2014). In many of the minority private cases the
(2000), Fraport (2001) and Paris (2005) - but also elsewhere such as in private sector will primarily just act as a provider of a source of capital.
Auckland (1998), Malaysia (1999) and Thailand (2004). However, in Interestingly within Europe there is a stark contrast where in the UK
the last ten years or so, with the exception of the IPO of Aeropuertos there are many fully privately-owned airport operators (Ison et al.,

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P.A. Graham Journal of Air Transport Management 89 (2020) 101930

2011; Graham, 2008) whereas in continental Europe, partial private appeal of airport assets is linked to them generally being long life assets
ownership is more the norm (ACI Europe, 2016). Overall, in Europe 25 with relatively low demand risk and high growth potential, stable and
per cent of airports are owned by mixed public–private shareholders predictable cash flows, and with a diverse range of revenues from both
compared with just 16 per cent that are fully privatised, with the rest aeronautical and non-aeronautical sources.
being under public control (ACI Europe, 2016). A similar situation exists Table 2 shows that some of the existing investors can be traced back
globally in relation to the top 20 airport operators with private partic­ to the first surge of airport privatisation in the late 1990s. At the same
ipation in the world, where only eight are fully private companies time, others – particularly the traditional airport operators - have now
(Table 1). ceased or scaled down their international involvement. For example,
this has been the case with Heathrow Airport Holdings (formerly BAA)
which pulled out of all its international activities by 2008 to focus on its
2.2. The selection of the operator/investor UK airports, especially Heathrow. UK transport operators such as
Stagecoach and National Express also sold their interests in UK airports
One of the most significant outcomes of privatisation has been a shift around the turn of the century to concentrate on other activities, sug­
from a national to global airport industry with international investors gesting that perhaps the synergies from airport operations which these
and expertise (Forsyth et al., 2011). In the early stages of privatisation transport operators had hoped for were not as significant as was first
investors were typically established airport operators (keen to expand thought. Moreover, a few investors have been partially or fully acquired
their scope of operations beyond traditional national boundaries, make by others. For example, Hochtief AirPort, a subsidiary of the interna­
gains from horizontal integration and share their expertise at less tional construction service provider Hochtief, was sold off to AviAlliance
developed airports) or international infrastructure companies, whereas in 2013 (a subsidiary of the Public Sector Pension Investment Board) to
airport privatisations are now dominated by international funds from reduce Hochtief’s debts and to focus on the core activities of construc­
financial institutions such as infrastructure funds, pension funds, in­ tion, services and maintenance. Similarly, Abertis, the world’s largest
surance funds and sovereign wealth funds (Condie, 2015; Rikhy et al., toll road operator, discontinued its Airports Division in 2013 to focus on
2014). Most of these funds are interested not just in airports but in most its core business.
types of infrastructure assets, and so tend not to have the same degree of At the same time there has been the development of specialised
allegiance to the airport business as with some of the earlier investors. In airport management companies in their own right, such as TAV and
essence, this demonstrates a movement away from airports being Corporación América Airports. Excluded from the table are the many
considered specialist assets to more mainstream infrastructure in­ pure financial investors who typically do not contribute to the day-to-
vestments. This is also reflected in a growth of secondary sales and day management of the airports, but view airports as attractive in­
transactions that have been experienced in Europe and elsewhere. The vestments. Airlines, who might have a motive for being involved to in­
fluence operational or investment decision, have been markedly absent
Table 1 in such investment with a few exceptions, most notably Lufthansa with
Top 20 airport operators with private participation in 2018. Fraport (8.4% share) and Munich (joint ownership/operations of T2).
World Airport operator Country 2018 Private Over the years the nature of the airport investor has changed and
ranking by Revenues share certainly will continue to do so in the future. The number of significant
revenue ($US mn)
(2018)
Table 2
1 Aéroports de Paris France 5270 Partial
(ADP)
Major international airport operators/investors in 1998, 2008 and 2018.
2 AENA Spain 5088 Partial 1998 2008 2018
3 Fraport Germany 4093 Partial
4 Heathrow Airport UK 3945 Full AENA AENA AENA
Holdings Aeroporti di Roma
8 Japan Airport Japan 2464 Full Aéroports de Paris Aéroports de Paris Aéroports de Paris
Terminal Aer Rianta/DAA Aer Rianta/DAA
11 New Kansai Japan 2249 Full AGI TBI (acquired 1999)
International Amsterdam/Schiphol Amsterdam/Schiphol Amsterdam/Schiphol
Airports Company BAA
12 Airports of Thailand Thailand 1924 Partial Copenhagen Airports Copenhagen Airports
16 Beijing Capital China 1698 Partial Frankfurt/Fraport Frankfurt/Fraport Frankfurt/Fraport
International Manchester Airport/MAG Manchester Airport/MAG Manchester Airport/
Airport Group MAG
19 TAV Airports Turkey 1430 Full National Express
20 Shanghai Airport China 1403 Partial SEA Aeroporti de Milano SEA Aeroporti de Milano
Authority TBI Abertis (acquired 2005a)
23 Aéroporti di Roma Italy 1208 Fulla Vancouver Int’l Airport Vancouver Int’l Airport Vancouver Int’l Airport
24 Malaysia Airports Malaysia 1202 Partial Authority/Vantage Authority/Vantage Authority/Vantage
Holdings Berhad Flughafen Wien Flughafen Wien
25 Flughafen Zürich Switzerland 1180 Partial Ferrovial Ferrovial
AG Houston Airport System/ Vinci (acquired 2018)
26 Sydney Airport Australia 1178 Full Airports Worldwide
27 Guangzhou Baiyun China 1167 Partial Hochtief AirPort AviAlliance (acquired
International 2013)
Airport Infratil
28 Manchester Airports UK 1163 Partial MAp
Group Malaysia Airports Malaysia Airports
31 Gatwick Airport UK 1060 Full TAV Airports TAV Airports
33 ANA – Aeroportos Portugal 995 Full Zurich Zurich
de Portugal Note: Other key operators/investors in 2018 include Changi, GMR Airports,
34 Flughafen Wien AG Austria 941 Partial
Corporación América Airports; grey boxes indicate where organisations are no
37 SEA Group Italy 839 Partial
longer active in international airport operations.
a a
< 1% public. 10% AENA.
Source: Compiled by author from Airline Business (2019) and Graham (2018). Source: Compiled by author from Airline Business and various other sources

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P.A. Graham Journal of Air Transport Management 89 (2020) 101930

players has increased dramatically - CAPA Centre for Aviation has Table 3
identified over 50 ‘Major Global Investors (MGIs)’ who have an interest Examples of airport group privatisations.
in at least five airports, of which at least one is foreign. Given the wide Original government Privatisation date Privatisation approach
range of investors involved, the relative successfulness of the different owned airport group
types of operators/investor is extremely difficult to gauge and is very UK - British Airports 1987 Group privatisation by
much dependent on airport specific circumstances and external factors. Authority (BAA): 3 share flotation but the
Many decisions will be highly political, such as choosing local partners London and 4 group was required to be
and international airport expertise that may be more acceptable than Scottish airports split up in 2009.
Australia - Federal 1997–1998 and 2002 Individual privatisation
selecting foreign financial owners. The different stages of an airport’s Airports (Sydney) with long-term leases with
lifecycle will also influence the type of investor. Various sorts of airport Corporation (FAA): multiple ownership
investments are better suited to certain types of operators/investments. 22 mainairports restrictions.
For example, in Condie’s (2015) view, different investors focus on Rome – Aeroporti di 1997 Group privatisation with a
Roma: Fiumicino partial share flotation.
airport assets in the following ways: Sovereign wealth funds - highest
and Ciampino
quality airports taking minority stakes; pension funds and insurance airports
companies - larger airports with low traffic risk and well-defined mar­ Argentina: 33 main 1998 Group privatisation with a
kets, infrastructure funds – possibility of more niche markets because of airports concession.
the shorter time horizons; airport companies – airports outside Europe Mexico: 58 main 1998 Five smaller groups (one
airports large/few smaller ones
where risks are too high for financial investors; construction companies each). Three privatised
– involvement only in PPP consortia (to help manage the construction through a concession
risk). approach with subsequent
flotation.
India - Airport 1999 (Cochin), 2004 Individual concession/
2.3. The choice of group versus individual operations
Authority of India (Bengaluru and Hyderabad), BOT privatisations, AAI
(AAI): 92 main 2006 (Delhi and Mumbai). operates remaining
Another key issue when there is more than one airport to be priva­ airports airports.
tised is whether the airports should be sold individually/independently Paris – ADP: 3 Paris 2006 Group privatisation with a
airports and others partial share flotation.
or as one entity. This may be particularly relevant if there is some type of
Italy – SEA Milan: 2011 Group privatisation with a
airport network arrangement – ACI, 2017 estimates that globally this is Malpensa and partial trade sale.
the situation in 69% of countries. Often within an airport group there Linate airports
will be one or a few large international airports that are profitable, and Brazil - Infraero: 67 2012 (São Paulo–Guarulhos, Individual concession/
clusters of small regional or local airports that are not. As a consequence, main airports São Paulo - Viracopos, BOT privatisations,
Brasília), 2013 (Rio – Galeão, Infraero operates
the profits from the large airports may cross-subsidise the loss-making
Belo Horizonte – Confins) remaining airports.
airports and so the smaller airports on their own may appear very un­ 2017 (4 main airports), 2019
attractive for privatisation. Arguably, other potential benefits of group (12 regional airports).
operations also exist, such as the ability to share resources and expertise, Portugal - ANA 2013 Group privatisation with a
reduce costs due to scale effects, and adopt a strategic and co-ordinated Aeroportos de concession.
Portugal: 9 main
approach to airport development. Selling airports as a group may airports
enhance the financial benefits for the government. Spain - Aeropuertos 2015 Group privatisation with a
On the other hand, group operations may seriously inhibit compe­ Espanoles y partial share flotation.
tition, giving the airports lower incentives to compete among them­ Navegacion Aerea
(AENA): 46 airports
selves, as users may have little choice but to use one of the group
airports. It may reduce service quality levels, discourage investment at Source: Complied by author from Graham (2018).
certain airports (particularly if there is spare capacity elsewhere) and
lessen the ability of management to innovate and react to the needs of (Galeana, 2008).
individual airport users, as operators instead try to co-ordinate the ac­ Whilst unique and complex local factors influence each decision
tivities of the different airports to maximise profits. Thus, if airport identified in Table 3, the case of the UK BAA airports does throw some
groups are privatised without being restructured or split up, some of the light on this issue. BAA (operator of London Heathrow, Gatwick and
potential benefits of privatisation for the users may, arguably, not be Stansted, and four Scottish airports) was privatised in 1987 as a single
achieved. Such airport groups do not necessarily have to be large in entity – a decision that was fiercely opposed by some:
number, as similar arguments can apply to just a pair of airports serving
major urban centres, especially if they share the same catchment areas Group privatisation would ‘merely replace a public sector organization
and abuse of market power is potentially an issue. by a private sector one’ … ‘Competitive privatization of airports would
In practice, governments have adopted different approaches as can result in an increase in competition, more consumer choice, more
be seen from Table 3. For example, in Portugal (Marques, 2011) and competition in the provision of services …, increased managerial effi­
Argentina (Lipovich, 2008), as well as Spain, the group operation was ciency and better investment decisions’
maintained whereas in Australia the main airports were privatised (Barett, 1984).
individually with limits on multiple investments. The group structure in
the cities of Paris, Rome and Milan has been maintained. In Brazil (Neto ‘ ․․privatising the BAA in its present form has few advantages and would
et al., 2016) and India, the largest airports within the respective airport fail to deal adequately with the real problems. Increasing competition is
system were originally privatised individually as concessions/BOTs with the most effective way of improving performance’
cross-ownership restrictions. However, in the 2017 round of issuing
(Starkie and Thompson, 1984).
concessions in Brazil, the rule was relaxed and Fraport took control of
two of the four airports. Subsequently 12 Brazilian regional airports The UK government, however, was not convinced with these argu­
were sold in three separate lots in 2019. Mexico adopted a half way ments. This remained a controversial issue until eventually the UK
approach, dividing the airports into five different smaller groups with a competition authority (the Competition Commission) concluded that
mixture of small and large airports in each group, three of which were common ownership of the airports in South-East England and Lowland
privatised with cross-ownership restrictions between the groups

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P.A. Graham Journal of Air Transport Management 89 (2020) 101930

Scotland gave rise to adverse effects on competition (Competition regulatory system might inhibit some of the benefits that privatisation
Commission, 2009) and BAA was then required to divest some of its could bring or have a much greater impact on performance than pri­
airports; completing its sale of Gatwick in 2009, Edinburgh in 2012 and vatisation itself. Likewise, the level of competition that exists is impor­
Stansted in 2013. In 2016, the successor to the Competition Commis­ tant, as it may be a much more powerful influence. This also links back
sion, the Competition and Markets Authority (CMA), undertook a to the discussion about group versus individual operations. Privatisation
detailed assessment of the effects of such divestment (CMA, 2016). It of airports through restructuring or dismantling airport groups may
identified a number of factors that indicated increased competition at bring possibilities to encourage competition, where maintaining the
the three airports since divestment, such as greater passenger growth, group structure could merely transfer a public monopoly to a private
more competitive airport charging, and increases in capital investment, monopoly, thus reducing any incentives to become more efficient, and
operational efficiency and service quality levels. Similar evidence was increasing incentives under private operation to exploit market power
found specifically for the Scottish market (Pagliari and Graham, 2019). (Frontier Economics, 2020).
This suggests that group operations may inhibit the benefits of privati­
sation and that having the right industry structure and competition is 3. Measures of success
essential.
Having identified some key issues related to airport privatisation, its
2.4. The relevance of economic regulation successfulness will now be assessed. At a basic level, there is ample proof
to show that BOT privatisations and other models have enabled sub­
Arguably the most controversial issue related to privatisation is stantial new investments to be made which otherwise may not have
economic regulation. Previously when most airlines and airports were occurred when there was public sector control. However, there is also
under public ownership and strict government control, formal economic strong evidence to demonstrate that the actual privatisation process has
regulation was generally considered unnecessary because any issues not always been successful. This has arisen for a number of different
related to market failure could be dealt with directly by governments in reasons, such as conflicts that have occurred between governments and
their role as suppliers within the industry. Airport charges were often the new private operator and the enforcement of the terms of privati­
simply set on a cost-plus basis. However, since privatisation has become sation agreements; problems related to the selection of the most suitable
a popular trend in both the airport and airline industry, this traditional investor; or inappropriate/unrealistic estimations of passenger airline
supplier-consumer relationship has been fundamentally transformed. As demand and the financial situation. For example, there was the unilat­
a result, governments have felt the need to intervene to correct market eral cancellation of the agreements by the government at Budapest and
failure by using economic regulation, especially at many of the larger Male airports. At Manila airport in the Philippines, Fraport was involved
privatised airports. with a privatisation project which led to a complex and extended dispute
The types of regulation, regulatory till (i.e. single versus dual till) and with the Philippine government, whereas in Berlin, there were several
detailed mechanisms vary considerably. The UK paved the way by separate attempts to use private investors to develop a new airport to
adopting an incentive-based price cap for BAA and a number of other serve the city until this approach was abandoned following a number of
countries such as France, Hungary, Spain, Portugal, India and South legal challenges. Elsewhere in Toronto, Stewart and Costa Rica the
Africa adopted fairly similar price cap or revenue cap mechanisms for airport (or privatised facilities) have been sold back to the airport
their privatised airports. By contrast the privatised Brussels airport fol­ operator or there has had to be a renegotiation of existing agreements, as
lows a cost based (rate of return) system (Kupfer et al., 2013), which also at Quito airport and in Argentina. In the US, there were two attempts to
now appears to be the case at Hamburg airport (and at the partially privatise Chicago Midway airport – one failing because of an inability to
privatised Frankfurt airport) (Steer Davies Gleave, 2017) after a shift secure the required financing and the other because one of the two final
from a price cap (with traffic sharing mechanism) that was used in bidders dropped out. In Spain, originally there were plans to privatise
earlier years after privatisation in 2000 (Niemeier, 2002). In a few cases Madrid and Barcelona airports as concessions, but this faced fierce op­
a more light handed approach has been adopted, for example at position and so instead the group AENA was partially privatised. There
Copenhagen airport when it was first privatised in 1994, or has subse­ are also a few cases of airports actually being renationalised – the UK
quently been introduced after a period of heavy handed price cap being a prime example where both Cardiff and Prestwick airports are
regulation in Australia in the early 2000s (Forsyth, 2008) and most now back in state ownership.
recently at Gatwick airport in 2014 (Littlechild, 2018). Delving more deeply, one of the most frequently studied success
There has been considerable research concerning the merits and measures relates to whether privatisation improves operating perfor­
drawbacks of different regulatory approaches and it is not the intention mance, particularly efficiency. Some of the key results from previous
to revisit any of this. The key issue here when considering the success­ research are summarised in Table 4. The studies here range from
fulness of privatisation, is that it is very difficult to isolate this devel­ considering individual airports, separate countries or the global situa­
opment without taking into account the regulatory context. Varying tion and so a very diverse set of cases is being assessed.
regulatory approaches have different impacts on efficiency levels. As regards efficiency levels, generally the results are inconclusive
Moreover, some privatised airports (e.g. Heathrow, Paris, AENA, ANA with some studies finding no statistical link between privatisation and
and India) under incentive regulation are subject to service quality efficiency whereas others have observed a positive relationship (or even
targets to ensure that airports are not incentivised to cut costs by negative one). However, there are three key factors to note. First a
reducing the quality of service. Likewise, the regulatory system can have number of different methodologies and datasets have been used and so
an impact on optimal investment (cost based potentially leading to over there is no consistency. Second when looking at longitudinal studies, the
investment, incentive based potentially leading to under investment) extent of any efficiency gains will depend very much on the situation
and certain airports (e.g. Heathrow) have specific requirements within beforehand when the airports were state owned. Third, when looking at
their regulatory framework to ensure that the investment is as planned. cross-sectional public vs private airport studies, in many cases it is likely
Ideally governments should investigate the existence of significant that the best performing airports will have been picked for privatisation
market power at each airport and gain a full understanding of the extent as these will be attractive to investors. Hence an identification of the
of airport competition before deciding which airports needs regulation ‘more efficient’ private airports may merely reflect that these airports
at the privatisation stage but this has rarely happened. are inherently more efficient.
Thus, the simple point being made here is that with any assessment In relation to the discussion above regarding the extent of govern­
of the impact of privatisation on airports, the effects of regulation and ment involvement, some of the results related to mixed ownership, or
competition must be considered at the same time. It may well be that the partial versus total privatisation, are worthy of a mention. While the

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P.A. Graham Journal of Air Transport Management 89 (2020) 101930

Table 4 Table 5
The impacts of privatisation on economic performance as identified in selected Skytrax top 20 rankings 2018.
research literature. 1. Singapore 11. Tokyo Narita
Parker (1999), Oum et al. (2003), Holvad No impact on efficiency
2. Incheon 12. Amsterdam
and Graham (2004), Vasigh and
3. Tokyo Haneda 13. Kansai
Gorjidooz (2006), Lin and Hong
4. Hong Kong 14. Vancouver
(2006), Barros (2009), Barros and
5. Doha 15. Taiwan Taoyuan
Weber (2009), Ahn and Min (2014),
6. Munich 16. Helsinki
Tsui et al. (2014), Vasign et al. (2014)
7. Central Japan 17. Vienna
Vogel (2006), Barros and Dieke (2007), Positive impact on efficiency 8. Heathrow 18. Shanghai Hongqiao
Assaf (2010), Botasso and Conti 9. Zurich 19. Copenhagen
(2012), Perelman and Serebrisky 10. Frankfurt 20. Sydney
(2012), See and Li (2015), Marques
Note: Airports with private involvement are shown in italics.
et al. (2015), Chen at al. (2017),
Olariaga and Moreno (2019) Source: Skytrax (2019)
Curi et al. (2010), Gutiérrez and Lozano Negative impact on efficiency
(2016) perform better or worse.
Oum et al. (2006), Oum et al. (2008), Public majority ownership is less
Finally, it is often argued that airport privatisation may lead to a
Curi et al. (2010), Adler and Liebert efficient than private majority
(2014) ownership. growth in non-aeronautical or commercial revenues, with private op­
Assaf and Gillen (2012) Private involvement has positive impact erators more able to foster this type of business. There is some anecdotal
on efficiency, but regulation rather than evidence to support this view, even suggesting that some privatised
ownership is the key performance airports have become no more than ‘shopping malls with runways’.
driver.
Adler and Liebert (2014) Public airports operate less efficiently
However, robust empirical research is harder to come by. It is also
than fully private airports in relatively difficult todisentangle this from general trends that saw a growth of non-
non-competitive conditions, but there aeronautical revenues, especially in the 1990s as commercial space
no impact in a competitive setting. expanded and non-aeronautical services were developed and diversi­
Bel and Fageda (2010) Non-regulated private airports charge
fied, but have latterly presented a more challenging picture as airports
higher prices than public or regulated
airports. face greater competition from on-line services, heightened security
Rolim et al. (2016), Aguirre et al. (2019) Privatisation has caused traffic growth controls and more mature, demanding passengers. The regulatory
framework, particularly in terms of whether there is a single or dual till,
will also have an impact. A rare commercial revenues study by Fuerst
literature has tended to not pay enough attention to this model (Albalate and Gross (2018) of 75 airports in 30 countries does find that state run
et al., 2014) the limited evidence (Oum et al., 2006, 2008; and Adler and and partially privatised airports appear to generate a significantly
Liebert, 2014) indicates that the incentives for efficiency are weaker smaller share of commercial sales than fully privatised airports,
under partial privatisation with a minority private share. This may although the authors do note that the sample size used to explore this
reflect the role of the private sector in being merely a source of capital specific relationship was comparatively small.
and with the government maintaining strong control of the airport
management and operations, but it may also be as a result of the con­
4. Discussion and conclusions
flicting objectives that may occur with such public–private partnerships.
Also, as argued above, it is important to consider economic regula­
Table 7 summaries the main changes that have occurred from the
tion and competition when assessing whether privatisation promotes
start of the unique privatisation journey to the current situation by
airport efficiency. In earlier research the effects tended to be examined
considering motivation, geographical reach and type of model, investor
independently but more recently these have been investigated together.
and sale. Such developments have transformed the structure of the
Indeed Assaf and Gillen (2012) found that it was regulation rather than
global airport industry and have led to the emergence of multiairport
ownership that is the key driver of performance, Adler and Liebert
(2014) observed that private versus public performance varied accord­
ing to the level of competition, and Bel and Fageda (2010) found that Table 6
Position of top 20 airport operators with private involvement within Skytrax top
privatised airports had higher aeronautical fees than public ones, but
100 rankings 2018.
only when not regulated. Finally, in connection to traffic and competi­
tion, it is interesting that both Rolim et al. (2016) and Aguirre et al. Top 20 airport operators Skytrax 100 rankings
(2019) all observed higher traffic volumes after privatisation which 1. AENA 42 (Barcelona); 43 (Madrid)
Rolim et al. argued could be as the result of privatised airports being 2. Aéroports de Paris 37
more effective in producing routes developments strategies, such as 3. Heathrow Airport Holdings 8
4. Fraport 10
route support and risk sharing with existing and new airlines. 5. Japan Airport Terminal 3 (Haneda)
Another success factor frequently discussed is whether privatised 6. New Kansai International Airports 13
airports enhance service quality levels. This is a different issue to 7. Airports of Thailand 36 (Bangkok)
explore, especially because of the highly subjective nature of service 8. Beijing Capital International Airport 33
9. TAV Airports Not in ranking
quality and lack of detailed publicly available datasets on comparative
10. Shanghai Airport Authority 18 (Hongqiao)
service quality. As a result, very little research concerning this issue 11. Sydney Airport Group 20
could be reviewed but instead a basic snapshot of the situation, similar 12. Aéroporti di Roma 85
to that undertaken by Poole (2019), has been provided by making a 13. Manchester Airports Group Not in ranking
comparison with Skytrax quality rankings, which are the most widely 14. Malaysia Airports Holdings Berhad 44 (Kuala Lumpur)
15. Flughafen Zürich AG 9
used rankings in the public domain. Table 5 shows that only nine out of 16. Gatwick Airport 54
top 20 Skytrax airports in 2018 had some private involvement in 2018, 17.Guangzhou Baiyun International Not in ranking
although Table 6 indicates that 13 out of the top 20 airport operators 18. ANA – Aeroportos de Portugal 57 (Lisbon)
with private involvement featured in the top 100 Skytrax rankings. This 19. Flughafen Wien AG 17
20. GMR Airports 66 (Delhi)
does not present a convincing picture as to whether private airports
Source: Skytrax (2019)

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P.A. Graham Journal of Air Transport Management 89 (2020) 101930

Table 7 (ACI, 2008)

Summary of key changes during the airport privatisation journey.
‘Success must be measured not just by the maximisation of revenues from
Beginning of Current situation
an airport sale, but by whether privatisation has delivered a cost-effective
journey
service of an appropriate quality for the travelling public. The record with
Nature of airport industry National Global
airport privatisations as with other infrastructure industries is often
Main motivations for Efficiency, Investment, government
privatisation investment income disappointing.’
Main privatisation model IPOs, trade sales PPPs
Main investors Airport operators Financial investment funds
(IATA, 2005)
Main type of sale Primary Primary and secondary
Moreover, in the last few years the debate has become more heated
Main areas for primary sales Developed Emerging economies
economies and intense, with both the airlines and airports going to some length to
make their divergent views heard (e.g. see ACI, 2017/2018a; IATA,
2019 and Deloitte, 2018/2018b):
international companies. The focus has been on the key economic and
financial impacts of privatisation without considering in any detail the ‘Private investment in airports … has proven to help deliver strong traffic
user, societal or environmental impacts which could be topics of future growth, significant increase in capital expenditure, and improvement in
research. service quality in airports around the world’
If successfulness is measured in simple operating efficiency terms,
ACI, 2018)
the paper has not provided conclusive evidence for the superiority of
private management over public management. However, arguably it is ‘There is …. a global need to finance new airport infrastructure to meet
now the need for investment capital or additional government income future demand and if government spending cannot be relied upon as it has
that are more important drivers of privatisation than efficiency. It is been in the past then there is ample evidence of the value created by
certainly very evident that BOT privatisations and other models have private investment in airports around the world’
enabled substantial new investments to be made which otherwise may
not have been made when there was public sector control. However, the (ACI, 2018)
extent to which privatised airports are more capital efficient in terms of ‘But it is wrong to assume that the private sector has all the answers.
providing optimal investment is an issue which has rarely been assessed. Airlines have not yet experienced an airport privatization that has fully
Firm conclusions regarding the impact on service quality can also not be lived up to its promised benefits over the long term … … … IATA research
drawn. shows that private sector airports are more expensive. But we could not
This paper has suggested that there are some key factors that are see any gains in efficiency or levels of investment. This runs counter to the
inhibiting the achievement of some privatisation outcomes that might experience of airline privatization where enhanced competition resulted in
be expected. The first factor relates to the extent of government control. lower pricing to consumers’
The available research evidence (albeit quite limited) suggests that a
mixed model, with minority private ownership, which is the common (IATA, 2018).
situation in continental Europe, is the least successful situation. The
Nevertheless, despite the lack of consensus between these two
second factor relates to airport groups. If these are privatised as a single
stakeholders and others, the privatisation journey is by no means over.
entity with no restructuring as has happened with a number of cases, any
Up until the end of 2019, the outlook for airport privatisation deals and
possible benefits of privatisation could well be significantly weakened
further secondary transactions was looking positive with relatively
by the lack of competitive forces. The evidence in the UK, where the
strong traffic growth being forecast, a growing need for capital invest­
restructuring and introduction of competition came about a long time
ment in the industry and increased pressures on government finances. In
after the original privatisation, appears to confirm this. This also relates
Europe, for example, airport transaction multiples had risen to average
to the last factors, namely regulation and/or competition in general,
22x in 2016–2018 compared with 15x in 2013–2015 (PWC, 2019). The
which, according to some evidence, matters much more than privati­
appetite for airport privatisation was clearly still present, even though
sation when considering efficiency. So, more focus on governance and
the list of potential investors was somewhat different from that in earlier
institutional structures in addition to privatisation could potentially
years, with some operators having abandoned their involvement (often
yield more insight.
due to the need to focus on core activities - either within or outside the
Of course, relevant stakeholders (governments, airports, airlines,
airport industry - or to generate funds to reduce debt), and with some
employees, shareholders, residents etc) will give different priorities to
investment funds having shifted their preference to other infrastructure
alternative measures of success relative to their own roles and per­
projects.
spectives. Arguably, the most publicly aired divergent views are asso­
However, all this dramatically changed with the coronavirus
ciated with the opinions of the airports versus the airlines. Whilst
pandemic in 2020, that has had a severe unprecedented impact on the
officially both the International Air Transport Association (IATA) and
entire international air transport industry, causing airport revenues
ACI have stated that they have a neutral view on privatisation, agreeing
from both aeronautical and non-aeronautical to fall sharply or disappear
that there is a no-one-size-fits-all solution for all the ownership models
altogether. As a result, currently airport investment no longer looks low
that exist, there is considerable divergence concerning the benefits that
risk, capable of producing steady returns with proven longevity, and this
privatisation has brought and whether it presents opportunities or
casts considerable doubts as to whether the private sector will be
threats in the future. Such conflicting views have been around since the
confident or willing to further invest in the industry. In the early months
start of the airport privatisation journey. Indeed, a few years after the
of 2020, share prices of many listed airports fell up to 50% to reach an
first key wave of privatisation was experienced in the late 1990s, their
all-time low around mid-March (CAPA, 2020). They have recovered
opposing views were clearly expressed:
somewhat but have not reached their pre-coronavirus levels, although to
‘There are skeptics who say that privatisation is driven by the needs of a certain extent this has just mirrored what has happened generally on
short-term financial results in a business that must plan for the long-term. the stock exchange. The credit rating of certain airports has also been
But in practice, this would lead to underinvestment, and the evidence is, downgraded.
on the contrary, that privatised airports indeed do invest heavily in At the time of writing in Summer (2020), airports and governments
infrastructure to meet future demand and ensure customer service levels’ quite clearly have different priorities, and a number of privatisation

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P.A. Graham Journal of Air Transport Management 89 (2020) 101930

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